Credit jitters hit global stocks and dollar

Jitters about the U.S. economy and the credit crisis kept investors away from riskier assets on Tuesday, sending stocks sharply lower and boosting the Japanese yen against higher-yielding currencies.

Wall Street looked set to open lower.

Caution grew on the back of Monday's data showing growth in U.S. factory activity slipped in November to the lowest since January and after Federal Reserve policy makers gave a sober assessment of the world's biggest economy.

Investors have also settled into a pattern of blowing hot and cold with sentiment, lifted by hopes for further interest rate cuts and depressed by poor data and a continuing drip of fear about the credit market.

Brokers Punk Ziegel downgraded Bear Stearns, Goldman Sachs and Lehman Brothers to sell from market perform, saying the retrenchment under way will force significant adjustments in the way the businesses are being run.

This led to expectations of more angst on Wall Street.

The question no one can answer is how much garbage paper is on the books of these big firms. Right now I don't know if they're sitting on a dollar of junk or a billion, said Barry Ritholtz, director of equity research at Fusion IQ in New York.

MSCI's main world stock index was down 0.3 percent on the day, held up from deeper losses by its emerging market components. Emerging markets were bucking the general downward trend with a 0.1 percent gain.